A former chief executive of the News Corp-controlled realestate.com.au says the company views real estate agents as its “outsourced sales force”, outlining how home sellers have been targeted with ever-rising advertising costs.
Simon Baker, who was chief executive of REA Group from 2001 to 2008 and now works as a consultant in the property tech industry, says the “vendor-paid” advertising market operating in Australian real estate is rare globally.
A vendor-paid market is where the seller of a house pays for the costs of advertising with the real estate portal – such as realestate.com.au or Domain – separately to their fee for an agent. This is not the case in many countries.
“Vendor-paid markets are fantastic in the way that your customers – the real estate agents – are not the ones paying your advertising bill,” Baker said in a podcast interview in February for the property industry website Online Marketplaces.
“The other thing that’s fantastic for the agents is that their brand is all over the advertising … so they’re actually getting the vendor – the home seller – to pay for the promotion and the branding of the real estate agent.”
Baker said the company had designed marketing packages to incentivise agents paying to have their listings on the first page of search results, creating more and more “premium” offers that kept prices increasing.
“That’s sort of how this all works nicely over time to create this ecosystem where it just keeps pushing the price up, and up, and up.”
He said advertising costs had increased substantially since the website was first established, rising from as low as $50 per listing to a scenario now where realestate.com.au would charge thousands of dollars to appear high in search results.
A July 2024 price list for REA Group shows that an inner-city listing in Sydney and Melbourne now costs almost $4,000.
Baker said a person selling a home would look to a real estate agent for advice and agents would recommend premium advertising packages because vendors were anxious to get the best sale price.
“The agents are very good at leaning on the vendors to get them to pay an advertising bill which is now not in the hundreds of dollars or euros per property but in the thousands,” Baker said.
When asked if he believed the premium packages were a good investment, and whether he would pay for them himself, Baker said he would not.
“I think these portals are making a lot of money selling a product that at the end of the day if it didn’t exist I don’t think it would change the underlying market dynamics much at all,” he said.
“It’s just there would be more money sitting in sellers’ pockets.”
Under REA Group’s pricing model, real estate agents are incentivised to purchase “Premiere all” packages that oblige sellers to take up the most expensive advertising option.
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Contracts allow agents and vendors to “opt out” of the most expensive advertising packages, but agents are limited by the conditions of their subscription package in how many listings they can downgrade to the cheaper option.
This means agents are effectively binding sellers to the more expensive offering as they are contractually bound to ensure between 80% and 90% of vendors pay for the more expensive advertising package.
In an interview with Guardian Australia, Baker said REA Group was viewed “jealously” by other property portals globally as it takes a much greater share of selling costs than in other markets.
He said there was “absolutely” a symbiotic relationship between agents and the portal, and the company had very deliberately targeted agents in order to increase revenue.
“There is this game being played. The agent is promoting the house but also promoting themselves,” Baker told Guardian Australia.
This leads to the agents recommending the more expensive advertisements, but Baker questioned whether these products were worthwhile.
“The real question is does buying the premium, super-premium make a real difference when it comes to the buyers – not the people who are looking, but the real buyers. And I think that is probably the real question that if I am a portal I don’t want to have answered,” he said.
“If you didn’t have all the advertising paraphernalia around it … if you took all of that out and just had one sized ad on REA, I don’t think you would see any material decrease in the volume of buyers engaging with agents.”
REA Group declined to comment.
